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Intex and New Rising did not buy two IPL cricket teams. They just finalised their advertising budgets for the next two years, says Prithviraj Hegde.
Are Indian Premier League franchises becoming advertising vehicles for big India business houses?
Have cricket, its players and fans become secondary as big companies cynically use India's most followed and visible sport to push their phone or toothpaste brands?
If one looks at what transpired at Tuesday's auction for the two IPL franchises, then there is reason to worry.
On Tuesday, December 8, New Rising, owned by business tycoon Sanjeev Goenka, bid Rs -10 crore (yes, minus 10 crores) to buy the Pune franchise.
Electronics giant Intex, that makes mobile phones among other things, picked up the Rajkot franchise for Rs -16 crore.
The teams were sold through the reverse bidding process for which the base price was set at Rs 40 crore (that the Board of Control for Cricket in India would pay the franchise from the IPL central revenue pool) and bidders had to quote an amount lower than that. The franchise that claims the least money would win the bid under this process.
The auction was necessitated following the suspension of the Chennai Super Kings and Rajasthan Royals for the involvement of some of its officials and co-owners in the IPL betting scandal in 2013.
So what does all this mean? And did Goenka and Intex win two cricket teams or just splurged on a two-year nationwide advertising blitz?
First, let us understand what the bidding really means.
The BCCI kept the reserve price at Rs 40 crore (Rs 400 million) for the auction. No, that was not the price the teams would have to pay to get the franchises -- if only IPL auctions were that simple!
That was the price the BCCI would pay the franchises per year! So the five parties that turned up at the auctions were asked to place reverse bids for the teams.
And that is how the two teams were finally sold for Rs -16 crore and Rs -10 crore.
So instead of the BCCI paying the franchises for playing in the IPL, Pune will pay the BCCI Rs 10 crore (Rs 100 million) each year for the next two years while Rajkot will pay Rs 16 crore (Rs 160 million) each year.
And how much did the BCCI end up paying to get two new teams for the new IPL season?
Nothing. Rather, it ended up with a Rs 300+ crore (Rs 3+ billion) profit!
How? This article (external link) on Cricinfo.com explains it: 'BCCI president Shashank Manohar explained, "What we had calculated was that BCCI pays them (franchises) approximate 70 crore first year out of the central revenue and next year it would be 75 crore. So that makes it 145 crore for one team. Now that 145 crore is going to be safe because they are not accepting that central revenue. Plus, they are paying us 25 crore so 50 crore (over two years) more. That is the simple calculation".'
In other words, while the older six teams will get Rs 70 crores to Rs 75 crore (Rs 700 million to Rs 750 million) per year from the central pool for playing the IPL, Rajkot and Pune will pay Rs 16 crore and Rs 10 crore per year to the BCCI for doing the same thing.
That is not the last of the expenditure incurred by the Rajkot and Pune franchises. Now they will have to assemble their new teams. For which the BCCI allows the two teams to spend between Rs 40 crore (Rs 400 million) and Rs 66 crore (rs 660 million). Plus there are the coaches, support staff, professionals etc needed to run the franchise. Add to this operating expenses, stadium costs, travel and logistics. Each of the new teams can end up spending in the region of Rs 125 crore to Rs 200 crore (Rs 1.25 billion to Rs 2 billion) each year.
So how do the franchises recover this money?
Well, they will get to keep the gate money collected during home matches, merchandising and whatever other revenue they can generate (say, sponsorships by other brands, etc). But not the money from television and other media rights (which the BCCI gets to keep and from where the IPL's central pool comes from).
And in two years' time, assuming there are no further legal setbacks, the CSK and Rajasthan Royals will be back in the IPL and that will be the end of the Pune and Rajkot teams's tenure.
Now, if you had a few hundred crores to invest and nothing to hawk, would this be the deal you are looking for? Sure, you get a sofa by the players dugout at the boundary line and a owner's badge to strut around the stadia with and pose for the television cameras (but from which you get no revenue).
So Intex and New Rising did not buy two IPL cricket teams on Tuesday. They just finalised their new advertising budgets. Intex probably to market its cell phones and Sanjeev Goenka to sell whatever stuff he manufactures from his share of the RPG empire.
The sofa by the dugout and selfies with M S Dhoni and Co are just the bonuses.